As of July 17, 2009 GSK’s Book Value was 13. 57 B, which is way lower in comparison to GSK’s market capitalization of 94. 32 B. As per financial theory, the market capitalization is based on the company’s total market value and not the book value. The book value of 13. 57 B is a figure that indicates the amount of money GSK was able to raise initially when it issued the securities.
However, market value indicates the total value at which that particular obligation would trade in the market for today. The current market values for preferred stocks and debt are difficult to obtain, since they aren’t traded very often in the open market. Also for most part the prices of preferred stocks and debt stray away from their respective book values, and this is why most financial analysts use market value of common stocks to calculate the market capitalization.
The figures 13. 57 B and 94. 32 B of book value and market capitalization, respectively, are both based on the number of outstanding common shares, and hence they are comparable. The market capitalization is almost 7 times that of the book value which shows that over a period of time, GSK has been able to perform very well, especially from an investors perspective, their stock has been in great demand over the years, which is why they have been able to increase the book value 7 folds into a mammoth figure of 94. 32 B.
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CONCLUSION All in all, after reviewing the annual reports from 2004 to 2008, one can evaluate that the directors and senior management of GSK keenly practice the corporate governance affairs, SEC rules and regulations, and give a lot of emphasis on meeting the accounting and auditing standards in accordance with the international laws, and compliance affairs.
References Bized (2009). Worksheet on the Interpretation of Final Accounts (Student Version). Available: http://www. bized. co. uk/learn/business/accounting/busaccounts/finalacc/student. htm. Last accessed 01,April,2009. CIFC (2009). The Centre for Interfirm Comparison. Available: http://www. cifc. co. uk. Last accessed 01,April,2009.
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